Practice Questions 4 solutions - Sample Questions for last...

Sample Questions for last ¼ of course 1. Today, most major currency exchange rates are floating, not fixed. True ___X__, False _______ 2. Assume that Intel common stock is currently trading at $75 per share and that you have entered into a short position on a 3-month European call option on Intel with a strike price of $75. The best outcome for you will be if Intel's price ends up being well above $75 when the option expires. True ______, False ___X___ 3. In a put option, the premium that the long position must pay to the short position increases with the time-to-maturity for the option. True ___X__, False _______ 4. In a call option, the premium that the long position must pay to the short position increases with the strike price of the option. True ______, False ___X___ 5. Assume that your parents are farmers and that they raise wheat. One way for them to limit their exposure to wheat price changes prior to the harvest is to take a long position in a futures contract on wheat. True ______, False ___X___ 6. The currency of a country with a low expected rate of inflation will generally appreciate relative to the currency of a country with high inflation. True __X___, False _______ 7. In the early 1980's, the Yen/$ exchange rate was ~ 208 Yen/$. Today, it is approximately 115 Yen/$. Over that time frame, the Yen has depreciated . True ______, False ___X___ 8. A futures contract differs from a forward contract in that the long position on a futures contract is committed to buy the underlying asset at the maturity date while the long position on a forward contract has the right, but not the obligation, to buy the underlying asset at the maturity date. True ______, False ___X___ 9. The $/Euro exchange rate is a floating exchange rate. True ___X___ False _______ 10. Most major currency exchange rates in today’s economy are fixed. True _______ False ____X__ 11. In the Purchasing Power Parity formula on the formula sheet,       $ ¥ spot E is the exchange rate that you could lock in today, guaranteeing the rate at which you could exchange yen for $ (or vice-versa) at some point in the future. True _______ False ___X___ 12. The notional principle of an interest rate swap is paid by the fixed rate party to the floating rate party when the swap matures. True _______ False ___X___ 13. The currency of a country with high inflation will generally appreciate relative to the currencies of countries with low inflation.

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True _______ False ___X___ 14. The notional principal of a swap contract is paid by the fixed rate party to the floating rate party in the final year of the swap contract. . True ________ False ___X___

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